E-auction of coal blocks to boost investor confidence: Report

Mumbai: The government's move to e-auction most of the 214 coal mines cancelled by the Supreme Court will boost investor confidence due to transparency in the process and reduce fuel availability risks, India Ratings said.

The entire process of e-auctioning through a nominated authority, who may engage experts to recommend re-allotment, is likely to provide the much-needed transparency to the coal allocation process, said Salil Garg, Director, India Ratings.

Transparency and robustness of the auction process, which will have to stand legal and judicial review, will be key to build investor confidence and ensure a steady flow of investment in the power sector over the long-run, he said.

As per the Supreme Court order, the existing allottees will still need to pay an additional levy of Rs 295 per tonne by December 31 for the coal they mined till September 24, 2014 (day when allocations were cancelled by SC).

They are also supposed to pay, by June 2015, the additional levy for the coal mined between September 2014 and March 2015, irrespective of their success in bidding process.

According to India Ratings report, e-auctions will reduce the fuel availability risks for companies. The eligibility criteria, linked to the preparedness status of the end-use plants (80% of investment made for schedule II mines and 60% in schedule III mines), accords priority to operational and near-completion end-users for bidding.

"Thus, their fuel availability risk is likely to reduce significantly. The provision of a cap on bidding for multiple coal blocks is likely to ensure healthy competition, prevent monopoly and guarantee the allocation of mines to maximum number of interested end-use plants," Garg said.

According to the draft norms, details regarding e-auctioning of 74 coal blocks will be finalised by December 22.

Auction of coal blocks is likely to be held in the second week of February, while letter of accord/vesting order is to be issued to bid winners by March 16.